Abstract
The prevailing institutional substitution perspective views Corporate Social Responsibility (CSR) in emerging markets primarily as a substitute for weak institutions. However, it remains unclear how the strategic value of CSR evolves when these markets experience significant institutional reforms. Utilizing China’s 2013 anti-corruption campaign as a quasi-natural experiment, we investigate how institutional strengthening reshapes the financial returns of CSR. We document a divergent effect: institutional strengthening enhances the positive impact of CSR on accounting-based performance while diminishing its valuation premium in capital markets. Drawing on signaling theory and instrumental stakeholder theory, we interpret this as a strategic pivot from signaling to substance. Crucially, stochastic frontier analysis further reveals that, although the external signaling premium declines, the technical efficiency with which firms convert CSR inputs into performance outcomes significantly improves. These findings advance the static substitution perspective, suggesting that as institutions mature, the primary driver of CSR value shifts from external signaling to internal substantive efficiency.